Gross Domestic Product (GDP) growth was positive in Europe during the second quarter.

Here are some of the uncertainties which may arise from them:

When will QE begin to end? How will changes in the program affect world economies and markets?

Who will be the new Fed chairman? What policies will be pursued?

Was the second quarter a turning point for the Euro area economy? Is Europe moving out of recession?

How has uncertainty affected things? Well, it has left U.S. Treasuries a whole lot less popular than they were just a couple of months ago. China and Japan reduced their holdings of U.S. Treasuries by about $40 billion recently. According to Reuters, a Chinese economist said the sale of Treasuries could be attributed to expectations that bond yields will rise and prices will fall as QE ends. In the same article, a Japanese policymaker said expectations about changing Fed policies created market volatility that forced some Asian central banks to defend their currencies and that led to the sale of Treasuries. In total, about $67 billion of foreign investment money was pulled out of Treasuries in June.

Uncertainty didn’t do much for American stocks, either. At the end of last week, most major U.S. stock markets had moved lower.

Data as of 8/16/13

1-Week

Y-T-D

1-Year

3-Year

5-Year

10-Year

Standard & Poor’s 500 (Domestic Stocks)

-2.1%

16.1%

17.0%

15.3%

5.3%

5.2%

10-year Treasury Note (Yield Only)

2.8

NA

1.8

2.6

3.8

4.5

Gold (per ounce)

4.6

-19.2

-14.7

3.8

11.5

14.3

DJ-UBS Commodity Index

3.2

-6.8

-9.2

-0.6

-7.2

0.9

DJ Equity All REIT TR Index

-6.4

-1.1

1.4

13.0

5.2

9.7

IS IT THE BEGINNING OF THE END? MAYBE…

Last Tuesday, Eurostat, which provides statistical information on the European Union (EU), announced that its flash estimate showed positive economic growth (up 0.3 percent) for the Euro area for the second quarter. Media outlets embraced the news with tremendous enthusiasm and some informed the world that Europe was, once again, on its feet.

Euro Zone Emerges from Recession – The Wall Street Journal

Euro Zone Exits Longest Recession in Over 40 Years – CNBC

Germany, France Haul Euro Zone Out of Recession – Reuters

While it’s possible the second quarter will prove to be a turning point for Europe’s economy, the headlines were a bit rash. Perhaps the blog, written by Ollie Rehn, European Commissioner for Economic and Monetary Affairs, should have been read before crafting their headlines. Rehn wrote:

“Add today’s quarterly GDP figures to other recent positive survey data and you will find reasonable evidence suggesting the European economy is gradually gaining momentum… I hope there will be no premature, self-congratulatory statements suggesting “the crisis is over.” For we all know that there are still substantial obstacles to overcome: the growth figures remain low and the tentative signs of growth are still fragile; the averages hide important differences between Member States… So there is still a very long way to go before we reach our ultimate goal of a sustainable growth model that delivers more jobs.”

Officially, the end of the Euro area recession will be determined by the Centre for Economic Policy Research (CEPR). This organization is similar to the National Bureau for Economic Research (NBER) in the United States. In both regions, business cycle dating is a tricky business. The CEPR assesses GDP and other factors, such as the components of output and labor market data when determining the start and end dates for recessions and expansions. One of the biggest hazards to cycle dating is data revision so you can be sure the CEPR will be paying attention when Eurostat issues revised second quarter numbers in early September.

Weekly Fun – Think About It

“True friendship is a plant of slow growth, and must undergo and withstand the shocks of adversity, before it is entitled to the appellation.” –George Washington, President of the United States